Simon Thorpe's Ideas on the Economy

This is a blog that I started in october 2010, mainly for discussing my ideas on the economy, taxation and politics. Please add comments - I'll do my best to reply. If you are new, I would recommend watching one of my YouTube presentations (in French or English). You can download a fully indexed pdf version (over 800 pages) here.

20 Feb 2018

If we do decide to give an Unconditional Basic Income of €600 to all adults, we need to decide what to do for those who are under 18. My suggestion is that we might pay half the sum (€300) to the parent(s) or guardian, and put the other €300 into a fund that would become available to finance
personal projects on reaching the age of 18. Logically,
this would amount to an impressive total of €64,800, which, when
multiplied by the number of people reaching 18 in a given year (818 939 for 2017), adds up to a very large sum - over €53 billion.

How
on earth could the French government possible afford such an amount?

In this post I would like to propose another radical reform which would effectively allow the state to finance the higher education system. It
currently costs €11 510 a year to put a student through higher
education in France. That's around €35000 for the 3 years needed to get a Licence
(roughly the equivalent of a Bachelors degree), and €57500 to study for
the 5 years needed to obtain a Masters degree.

77% of French youngsters currently get the Baccalaureat qualification which entitles them to attend University. And many of them do, with the result that the first years of university are often overloaded with students who might not really be convinced that university is for them - but at €184 a year, it is a good deal.

But imagine what would happen if the Universities were to charge the true cost of the teaching (€11 510) and that this could be paid by the students using their €64 800. Everyone would thus be able to go to University if they wanted. But they would know that they are using their precious savings, and that they also have the choice of using the money for something else if they wanted. They could, for example use the money to start up a business, either individually, or by getting together with a group of friends. I suspect that the percentage of youngsters going into higher eduction simply because is is an easy option could drop considerably - easing the pressure on the universities.

They might also choose to use the money to help them pay for somewhere to live. France is a country where there are still many rural areas where €64 800 can be enough to buy a modest house for cash. Thus, young people would have a real choice at the start of their adult lives. Education, or starting a business, or starting a home. That sounds quite an attractive option to me.

The other effect would be to encourage those who finally decide to go to university to make a go of it. Currently, many students are only poorly motivated and end up retaking one or more years, with the result that it can take several years of study to get a degree that should normally be obtained after just 3 years.

My guess is that such a shift from a higher education system which is provided for almost nothing to one where students pay the real cost, but where the state provides the money needed to cover the costs, could radically improve the efficiency of the system.

And I would note that this proposal is much better than the one that is currently used in the UK. Students studying at University in the UK are effectively paying close to the full cost of their eduction via a £9250 annual fee charged by the vast majority of Universities. But the only real choice for students in the UK is to borrow the money, meaning that by the time they have got their degree, they can easily have run up debts of £50 000 or more. Indeed, total student debt in the UK has now reached a staggering £100 billion. With my proposed scheme, you would be able to fund universities without anyone having to run up debt at all.

There is another interesting effect that might be obtained by introducing such a scheme. Currently, there a large numbers of young French people living in relatively deprived areas in the suburbs who are essentially disaffected and disatisfied with the society that they live in. Such people are often easy targets for radicalisation, and may end up joining a Jihad in Syria, for example. Offering them all a substantial starter pack on their 18th birthday could be precisely what is needed to avoid such problems.

In my recent posts, I have suggested that we could provide all adults in France with an Unconditional Basic Income of €600 a month and pay for the entire system with a flat rate tax on all additional earned income of 30%.

I also suggested that it would be good to provide those under 18 with a €300 monthly payment that would be paid to the parent(s) or guardian. But I didn't provide the details of how that could be financed within the context of my Negative Tax proposal. Indeed, my original calculations didn't include the cost of payments to under 18s.

So, let's look at the numbers.

The latest official figures puts the total number inhabitants in France at 67.2 million, of whom 14.8 million (22%) are under 18. Providing a €300 basic income for each of them would cost €4.434 billion a month.

How might this paid? One option would be to increase the flat tax from 30% to 34%. This would indeed allow all adults to receive a €600 a month, and those under 18 to get haf that amount - namely, €300.

Relative to my original proposal, where 61% of the population receive something from the tax system (paid by the 39% who earn the most), the new figures mean that only 53% of the population would get a net payment from the system, paid for by the 47% that earn the most.

Of course, this particular set of numbers is pretty arbitrary. For example, if we decide to stick with the 30% flat tax rate (rather than 34%), the system could be made to balance by reducing the basic income for adults from €600 down to €529 (and sticking with the principle that under 18s would get half the adult value, i.e. €264.5 par mois).

It's up to us to decide the level of Basic Income and flat tax that we want. Indeed, the French government has already voted to impose a flat tax of 30% on all income from capital (interest payments, dividends etc). Unfortunately, I have not yet been able to determine how much revenu this change will produce, but it would seem to me to be perfectly reasonable to unify these different sources of revenue. In other words, revenue should be taxed at the same rate whether it is income from paid work, or from capital investments. It is highly probably that such a more would produce enough revenue to allow both the €300 for under 18s, and €600 for adults to be financed.

18 Feb 2018

Following my recent talks and presentations, I've been getting a number of questions about the details of my proposal for implementing a basic income in France via a radical reform of the tax system.
The basic idea is shown in this figure.

The blue curve shows the income distribution for people aged 18 and above (extracted from a table provided by Landais, Piketty & Saez). It shows that about 10% of the French population have virtually income at all (apart from welfare payments). The curve increases roughly linearly up until about the 75th percentile, before shooting up. Roughly 2% earn more than €10000 a month, and I didn't plot the graph above that point to keep things in scale.

The red curve shows what people's income would be with a Basic Income set at €600, and a flat tax of 30% on all earned income. I note that the French government recently voted to impose a flat tax on all income from capital (rents, dividends etc). So really, all I am proposing is to extend the same principle to all forms of income, including salaries.

The green line is the neutral point that occurs when someone is earning €2000 a month. At that point the €600 of basic income is cancelled out by the need to pay €600 (i.e. 30% of €2000) in tax. The 61% of the French adult population who earn under €2000 a month would thus receive a net payment from the tax system - effectively a negative tax.

Amazingly, by choosing the numbers in this way, I was able to set things up so that the money needed to make those payments is provided by the tax paid by the 39% earning more than €2000 a month. In other words, the Basic Income can be financed with no additional input. Indeed, the income tax system becomes a purely redistributive mechanism - channelling money from the 39% who earn the most to the 61% who earn the least.

As I said, these ideas have triggered a number of questions. So, lets look have a look at some of them/

Is the Negative Tax system progressive?

Despite being based on a 30% flat rate of tax, it really is a progressive tax.
Think about it.

Someone earning nothing will get the basic €600.

Someone earning €1000 would get the €600 plus 70% of €1000 (€700) making a total of €1300 (effetively a tax of -30% on their earnings!)

Someone earning €2000 would keep all their earnings (tax = 0%)

Someone earning €2500 would keep €2350 (tax = 6%)

Someone earning €3000 would keep €2700 (tax = 10%)

Someone earning €4000 would keep €3400 (tax = 15%)

Someone earning €6000 would keep €4800 (tax = 20%)

Someone earning €10000 would keep €7600 (tax = 24%)

Someone earning €20000 would keep €14600 (tax = 27%)

That seeems to me to be a very progressive tax scheme with no need for arbitrary tax bands. Indeed, it's actually pretty close to the current situation where less than half of the French population pay income tax, and where the effective tax rates rarely go above 20-30% except for very high earners.

Furthermore, that person earning €10000 a month will know that their tax cut of €2400 would be directled exclusively to people earning less than €2000, but with a much larger share going to those right at the bottom. They would be able to look themselves in the mirror and know that they were doing something directly to help those less fortunate. It might encourage them to pay their taxes normally like the rest of the population, rather than attempting to hide their wealth in tax havens.

In addition, those at the top end of the scale would be paying a marginal tax rate of 30% that is in fact lower than what they currently have to pay - 45% in France. In other words, everyone is better off. Who would vote to keep the current system?

Would there be a Basic Income for under 18s?

Many people want to know what I think should happen for those under 18. While I think that you could have a smaller amount (say €300), my preference would be to keep the same number but to divide the Basic Income into two parts. One part would be given to whoever was legally responsible for the child. The other part could be put into a sort of savings account that would allow the child to have a sizable pot of money when they reach 18, a pot that could be used for a wide range of projects including paying for higher education, other forms of training, setting up a business, travelling or indeed any other activity that could be justified. I would probably want to prevent young people from simply cashing in and spending everything on a drink and drug splurge.

Let's take a simple case where the €600 is divided into two equal parts - €300 for the parents or guardians, and €300 for the savings scheme (other splits are of course possible).

The part for the parents and guardians would only be provided to people who were prepared to commit to providing the basic necessities for the child's welfare. All children would need to have a predefined set of things that might include at least 2 pairs of shoes, underwear, trousers, shirts, jumpers and rainproof clothing. Any parent or guardian who did not meet those minimum requirements would no longer receive the money. In such cases, the money would be diverted to someone else (a relative, friend or a foster parent, for example) who was prepared to take responsibility for the child's wellbeing. Making the payments conditional in this way would, I believe, avoid the temptation to have excessive numbers of children to simply increase revenue. Anyone who did that would know that there was a serious chance of losing that revenue later on, if they failed to behave responsibly.

Normally, for a child with two parents, the €300 would be split between the two parents. But in the case where there was a separation and one parent only looked after the child for part of the time, the allowance could be split to reflect that amount of time that each parent was looking after the child.

Single parents would of course receive the full sum for each child in their care.

You could even have a situation where a child was living in a community with several adults (not just parents) who could share the funding between them. They would simply need to agree on the way the money was split for such variants on the standard two parent model to work.

What about the €300 a month put into a savings account? At €300 a month over 18 years, this would add up to a total of €64800 - enough to pay for a university education for those who want it. Or to help launch a business project.

In principle, young people would have to wait for 18 years to be able to get the full amount. And one year after the introduction of the scheme, someone reaching 18 would only get 12 times €300, i.e. €3600.

However, personally, I would be in favour of opening the scheme up straight away, so that all youngsters would be able to count on a large sum from day one. I really think that much of the divisions in society and the problems in the suburbs could be reduced by convincing young person that they really do have a stake in society and that, effectively, the rest of society really does want them to be able to make a success of their lives.

Sure, with around 800,000 people reaching 18 every year, this would cost a lot - around €50 billion, to be precise. But it might be worth it. The alternative, of course, is to reduce the €300 sum reserved for the savings pot to a more affordable amount.

What would happen to other welfare payments?

It seems to me clear that if there was,a radical reform of the taxation system that allowed everyone over 18 to have a basic income of €600 (€300 for under 18s), it might be possible to get rid of a significant proportion of the current mechanims. This issue is clearly critical. If the Basic Income was used to get rid of all the current social security system, it could be viewed as a very right wing liberal agenda aimed at rolling back the role of the state. On the other hand, if the Basic Income was only used to replace benefits that were clearly redundant, it really could be just thought of as a useful simplification of what is currently a very unwieldy and complex system.

The fact is that the take up of many of the exisiting benefits is often poor. In many cases, potential claimants are simply unaware that they are entitled to receive the payments. In other cases, they may know about the scheme, but find the administration too daunting.

Rolling benefits into a single Basic Income could thus have very beneficial effects by avoiding such problems and making sure that everyone gets treated in the same way.

So, let me be more specific. I have looked carefully at the range of welfare payments that currently exist in France with an aim to choosing those ones which could reasonably be dropped following the introduction of a Negative Taxation based Basic Income scheme.

I took the latest figures from the French Government that details spending on social security in 2015. There are a set of documents that can be found here that break spending down into 8 different areas

In all, there are some 75 different types of State aid schemes in France, that together cost close to €600 billion. You can find my analysis in a public Google Sheet file here.

Over three quarters of the nearly €600 billion budget goes on Pensions and Health care, and I think that we can safely ignore this expenditure as being something that cannot be replaced by the Basic Income payments. When people have contributed to a Pensions scheme, they have a right to expect that they will get the pension they saved for. Likewise, payments for health care are, at least for me, something that should not be covered by a basic income. I am definitely not proposing a system like the one proposed in Trump's America, where individuals have to finance their own health care plans.

On the other hand, many of the other types of welfare payments could perhaps be integrated into the Unconditional Basic Income via a reform of the tax system. For example, many of the payments made to those with disabilities (totalling nearly €20 billion) could be integrated into a Basic Income scheme by simply having a higher Basic Income than the standard €600 a month for anyone unable to work. For example, currently €8.6 billion a year is paid to the roughly 1 million people eligible for the AAH (Allocations aux adultes handicapés). That works out at an average of around €700 a month. By increasing the Basic Income from €600 to €1300, this could allow those payments to be made withnin the same system.

However, there are a number of other payments that could reasonably be dropped and replaced by the standard Basic Income. These include the Allocation Familiale (AF) which costs €12.8 billion and involves payments to over 5 million people, which averages aound €213 a month. Over 3.1 million people also receive an allocation de rentrée scolaire,
costing nearly €2 billion a year and amounting to about €50 a month. These numbers are below the proposed €300 a month for looking after children under 18.

There is another scheme called the Prestation d'acceuil pour Jeune Enfant, which has various forms. The basic version costs over €4 billion a year, and is paid to over 1.8 million people, which averages €188 a month. There's a PAJE "Complement d'activité" costing €5.7 billion a year, paid out to 455,000 people and is about €151 a year.

Note however, that there is another PAJE - "assistante maternelle" that costs €5.7 billion, is paid to 750000 people and costs an average of €638 per month per person. It may be that to cover such costs, it might be necessary to increase the Basic Income payment to people with young children to compensate. But I note that there is another solution. Why not simply subsidise the creche system and make direct payments to the creche rather than making payments to parents, who then need to pay the creche? A similar solution may already be in place in the case of the "Acceuil des jeunes enfant (creches)", that costs over €5 billion a year.

Other benefits are aimed at reducing extreme poverty. They include the RSA (revenu de solidarité active), costing over €10 billion a year and paid to 1.9 million people (an average of around €450 a month), and the RSA activité, costing €2 billion a year and paid to 915,000 people (an average of €194 a month). Over 5 million households receive the PPE (Prime pour l'Emploi), which costs over €2.1 billion a year, and provides an average of €34 a month.

Substantial sums are involved in pension payments. For example over €20 billion a years is spent on special payments for retired people who were not paid a salary, and around €3 billion for the so-called Minimum Vieillesse - a sort of basic income for the retired.

But overall, if we take the 60 or so different payment mechanisms currently in place that are not related to pensions or health, there is a total of around €169 billion in payments that could potentially be integrated into a Basic Income scheme that involved a fundamental rewrite of the tax system.

It seems almost incredible. How is it possible to cover much of the costs of these benefits using a reform to the tax system that is itself self-financing? Actually, when you think about it, in makes sense. The current version of the income tax system currenty provides money for the government. The amount it provides is pretty close to the numbers I have been talking about here (for example, income tax provided around €146 billion in revenue for the French goverment in 2010). By reworking the whole system, we have simply diverted that same amount of money into peoples' pockets without having a separate tax and welfare system.

In a nutshell, we would have shifted from a system where Income tax provides around €170 billion a year that effectively gets used to finance the benefits system, to one where the Income tax system provides no actual revenue for the state, but where the requirements of the welfare system are covered by the negative tax mechanism.

The ultimate question thus becomes whether voters would actually want to keep the current extremely complex tax system with multiple tax bands with hundreds of tax loops, and an equally complex benefits system that many people in need can't use because it is too complicated for them, or switch to a very simple streamlined reformed tax system where everything, including benefits, are all done with a single system that everyone can understand.

There are, in fact, a whole host of reasons why a Universal Basic Income would be a great idea. My analysis of how it could be implemented in France suggests that there is essentially no reason for not going for it. And the sooner the better.

I've been very quiet for a few months. But actually, there's been a lot going on.

Following my talk at the Emtech meeting in October, the author Calum Chace has asked me to join a very interesting group of people who share the view that technological unemployment caused by AI and Robotics is going to have a very big impact on society. I've already been to a couple of evening events in London and we have some interesting ideas in the pipeline. Calum has written 2 excellent books that I can thoroughly recommend:

Last Thursday (15th February), I gave a TEDx talk in Toulouse (in French) entitled "Survivre à la révolution de l'Intelligence Artificielle". Here's a link to the event, and the Youtube version should be coming out soon (I hope). I gave examples of the new chips that are coming out that only cost about $10, and which can do trillions of calculations per second on very low power devices (under 1 watt) that are only about 7 mm across. I predict that such devices are going to make it possible to automate many of the jobs that people currently do to make a living. The consequences will be catastrophic - IF we continue with the current economic model where everyone is supposed to be able to earn enough to live on. But there's a simple solution - a Universal Basic Income. And in my talk, I detailed three different ways that would allow such a system to be introduced.

In other posts, I will and answer some of the questions I have been asked about the details of the proposal.

7 Nov 2017

The COP23 meeting is currently running in Bonn. Among the main questions - how can we raise the $100 billion a year that is needed to combat climate change, especially since Trump's decision to effectively pull out of the deal.

There's an incredibly simple solution. As I documented recently, global financial transactions in 2016 totalled over $11 quadrillion - that's 100,000 times more than the amount needed. And that $11 quadrillion figure has been exceeded in 4 of the last 10 years, despite the financial crisis.

It follows that an absolutely minuscule tax of 0.001% would finance the whole thing, without the need for governments to chip in directly using taxpayers money. Everyone on the planet would be contributing, in proportion to their financial resources.

I see another huge advantage in the current situation where the recently released Paradise Papers have revealled the true extent of tax evasion. The UN should simply impose the 0.001% tax on absolutely every transaction, wherever it occurs. Apart from providing the funds necessary to fund the fight against climate change, it would mean that anyone attempting to hide their financial activities could be commiting a criminal offence. The UN should have prisons for anyone who attempts to cheat the system by making undeclared financial transactions.

The only transactions that could escape such a tax would be payments in cash. But it would be easy to phase out cash as a means of payment. Even in Africa, people are getting used to using mobile phones for banking.

5 Nov 2017

It's been a long time since I last posted a Youtube video. Here's a new one that could interest readers of my blog.

It's a modified version of a talk I first gave at the EmTech
(Emerging Technology) meeting in Toulouse France, on the 10th of October
2017. For the first time, I managed to talk about my two passions in
the same talk - my interest in brain-inspired computation, and my
interest in economic reform.

Essentially, I argue that $10 chips with Neural Computing algorithms
will be replacing humans in many paid jobs. The resulting transformation
in society will lead to a catastrophy if we continue with the current
system.
However, solutions already exist.

I claim that we need a Universal Basic
Income, and suggest three perfectly valid ways to implement such a
system. These are (a) using negative income tax, (b) using Central Bank
Money Creation, and (c) imposing a tiny Financial Transaction Tax on all
electronic transactions.

Interestingly, it looks there are more and more people who think that the Robotics revolution is going to result in many people losing their jobs in the coming years. Well known science broadcaster James Burke was on BBC radio a couple of days ago saying that 90% of jobs will disappear in the next 30 years. And to my delight, he also said that he thinks that a Universal Basic Income could be the solution. You can find the broadcast here. James' presentation starts after 51 minutes.

22 Oct 2017

Here's another table that analyses where the financial tranasactions listed by the Bank for International Settlements have been taking place since 2016. You can again find the data on a google sheet file here.

The US remains the biggest player, followed by the UK, although the international CLS settlement system comes close at number 3 in 2016..

By looking at how the transactions in different countries have changed, you can see some very dramatic changes over time. The most striking change has been China, where transactions have increased from just under $134 trillion in 2006 to over $1.14 quadrillion in 2016, putting it at the number 3 slot. Germany has now dropped back to a mere $638 trillion in 2016 from a peak of $1.46 quadrillion in 2013. It has thus dropped behind Japan.

From my point of view, the fact that transactions can move around like that doesn't really change my basic conclusion. If we decided to impose a Global Transaction Tax, it would be be possible to provide a Basic Income at 50% of median income for every person on the planet with a tax of just 0.1%. The money is clearly there, it just doesn't get used to do the most important things for the planet.

And, as I have said over and over again, even the $11 quadrillion a year reported by BIS is almost certainly massively underestimated becauses the mammoth Options Clearing Corporation doesn't even get listed. So you might not even need to tax at 0.1%.

You might say that there would always be some place where people would try to provide a tax haven to allow traders to get away without paying even 0.1%. There are solutions for that too. You simply have to decide that any financial transaction that is not declared is not legally valid. I suspect that even the most greedy traders would be happy to pay 0.1% of the transaction value to ensure that their billion dollar deal was legally valid.

8 Oct 2017

If you have been reading my blog, you will know that I am a big fan of having an Unconditional Basic income. In my last post, I noted that with Global financial transactions running at a minimum of $11 quadrillion in 2016 (official BIS figures), you could finance a Basic Income at 50% of Median Income for the entire population of the planet with a flat rate financial transaction tax of 0.1%.

But in this post, I would like to point to another simple way of financing Basic Income.

I've just looked at the latest figures provided by the European Central Bank for its Expanded Asset Purchase Program (APP) which has been running since October 2014. This is actually composed of four separate programs:

The history of these purchases is in a CSV file that can be downloaded here. But to make things easy to see, I have imported the info into an excel sheet that can be found as a publicly available Google Sheet here.

Here is a table of the figures.

As you can see, the total has now exceeded €2 trillion. This corresponds to around €6160 for each of the 330 million people living in the Eurozone. Since March 2015, the ECB has been pumping roughly €64 billion every month into the economy. That money could perfectly well have been given directly to Eurozone citizens. It would have been roughly €193.50 each - €774 for a family of four.

Of course, I imagine that Mario Draghi, the ECB president, will say that his way of using €64 billion a month is better. It certainly has been better for the banks, who have been able to buy up Public Sector debt by using their money creation power, and then hand on the bonds to the ECB. Effectively, some 82.4% of the "money" created by the ECB has been used to buy up Government bonds on the secondary markets.

But really, if the ECB wanted to get the Eurozone economy working, putting the money into peoples pockets would be a much more efficient way to use €2 trillion. It's the idea that has been proposed for some time now by the QE4people movement.

Sorry. I've been very quite for a couple of months. But when the Bank for International Settlements brings out its Statistics on payment, clearing and settlement systems in October, I really feel that I have to do my standard analysis - one that I've been doing every year since I started this blog in 2010.

If you want to do the number crunching yourself, you can get the original data files from the BIS website. There are two excel files - one provides comparative tables for the 23 countries that BIS reports, all converted into US dollars. The other provides information country by country, using each countries national Currency.

However, the really interesting numbers are not available directly in the documents. You have to compile a monster file with all the entries from the different tables. There are 241 separate values, and you can see them all for the entire period from 2006 to 2016 in a Google Sheet that I have made public here.

The bottom line (literally) is that in 2016, the total value of the transactions listed by the BIS comes to $11,014,671,780,050,100. Let's just call it $11 quadrillion, shall we?

The total for the period from 2006 now totals over $117 quadrillion. Which means that the average annual value is a healthy $10.6 quadrillion over the entire period. It has never slipped much below $10 quadrillion, except for 2006.

To get an idea about the key players, I've compiled a short table with just the top 25 players, each of which has done over $1 quadrillion in trading since 2006. Together they account for over 80% of the total.

The three red values are based on the previous years numbers. I did this because the the values for 2016 are not yet available for NSCC (National Securities Clearing Corporation) and Payment Transactions by non-banks in the USA. And for some reason, the Payment Transactions by Non-Banks for 2011 was never made available in the BIS data set. Oh well. Too late now, I guess. The value for 2016 is up about 4% on 2015. But this is mainly due to the fact that BIS has finally managed to get a figure for one of my favourite trading sites - LCH Clearnet Ltd. Those figures have been mysteriously "nav" - not available for the period 2010-2015. Given that LCH Clearnet managed to handle over nearly $1.6 quadrillion in transactions in 2008, this slight oversight meant that the figures for that period are clearly underestimates. Now that the BIS has rediscoved the existence of LCH Clearnet's figures in 2016, you can see that with over $786 trillion of transactions in 2016, it's a major player. But the fact is that even BIS's figures are certainly massively underestimated. For a start, they only cover 23 of the worlds countries. But even more significant is the fact that the Bank for International Settlements doesn't report anything for the Options Clearing Corporation, based in Chicago, which is "the world's largest equity derivatives clearing organization". The OCC has handled over 4 billion transactions every year since 2011. I've been unable to find how much those transactions were worth, but given that they generate over $1.3 trillion in premiums, the total could dwarf even the $11 quadrillion a year in total value listed by BIS.

Imagine. No more starvation, no more mass migrations, no more need to inflict environmental destruction on the planet. The wealthiest 1% of the population would soon no longer have the same wealth as the rest of mankind - as Oxfam reported earlier this year. Six people would no longer have the wealth of half of humanity - as recently pointed out by Bernie Sanders.

22 Aug 2017

I started my blog on the Economy in October 2010. Since then I have generated a total of 576 posts, corresponding to over 380 thousand words and over 2.1 million characters. The blog has been visited more than 441 thousand times.

That's a lot of stuff to read.

Just in case there is someone out there who would like to read all my output at their leisure, and maybe read it using a reader program rather than on the web, I have used BlogBooker to generate a Word file, that I then edited to produce a monster pdf file with over 800 pages. It's actually quite a good way to read the stuff, because all the links work, and you can use the index at the front to navigate. You can also easily search the text for keywords etc.

You can download the file, called "SavingTheWorld-2000-2017" by clicking on this link.

£2,400 per year to every person between the ages of 0 and 17 (for 16
and 17 year olds, the payment will be made directly to the recipient.
For those 0-15, payment will be made to the named guardian/primary
carer)

These seem like pretty reasonable numbers that take into account the fact that people over 65 are less able to go out and work to earn additional income than those between 21 and 64. I presume that Martin's proposal would replace the UK's state pension (currently £122.30 a week, or £6359.60 per annum). Giving more to the elderly seems justified, in the same way as it would be normal to pay more to those of working age who have physical or mental handicaps that reduce their ability to obtain additional income. Martin and I agree that while the Basic Income would allow many of the current means tested benefits to be scrapped, it is necessary to keep at least some of the existing benefits in place.

Specifically, Martin suggests that those benefits would add £50 billion to the cost of the system, broken down as follows:

Disability benefits -£18bn

Housing benefit for OAPs - £5bn

Second Earnings-Relation Pensions Scheme - £10bn

Attendance Allowance - £6bn

Various other random allowances - around £10bn

He also points out that my figures, which uses the percentiles among tax payers fails to take into account the existence of a substantial number of people who would also be eligible for the Basic Income, but didn't figure in my original calculations. Specifically:

4m people who work, but earn less than £10k

2m people in full time study/training

1.2m pensioners who have no income other than the state pension

about 6m other people who have no income (stay-at-home parents, unemployed, the sick etc)

It's a fair point. Clearly, I will need to make adjustments to the precise values for the values for the Basic Income and the flat tax rate to make the system balance. But I feel that whatever the final numbers, the overall scheme which sees the Income Tax system as a way to provide a Basic Income and redistribute revenue from the highest earners to the rest of the population will work.

Indeed, on his website Martin gives a specfic implementation in which he proposes a Basic Income of £7200 a year, coupled with a flat tax of 35% that allows the Goverment to raise £63.5 billion a year. In that simulation, he takes into account the numbers of people who are currently non-earners. The result is actually very close to what I am proposing, with the difference that the point at which people stop being net receivers from the tax system is shifted left to the 44th Percentile point. It is this that allows the proposal to generate revenue for the government, whereas my proposal which has the neutrality split at around 66% is deliberately designed to be a self-contained redistribution system. My own view is that Income tax should not be used for raising revenue for the government - raising revenue would be easier to do with a Financial Transaction Tax, that would also be a flat rate tax, paid by all - citizens, businesses and banks alike.

One reason I think this may be a good ploy, especially in the USA where there are a lot of people who object to giving any of their hard-earned money to the government. With a scheme where their tax money only goes to other citizens, it is a lot less easy to object.

4 Jun 2017

Now that I have shown how to implement a Basic Income using a perfectly balanced redistributive Income Tax system in France and the UK, I thought I would see how the same idea could work in the USA.

I took figures for the Income distribution that I found here (a bit tedious, because I had to extract the numbers by hand), and that allowed me to generate a Google Sheet file that you can consult here.

The following graph shows one of the many options for a balanced system.

In this one, we give all US citizens a Unconditional Basic Income of $15000 a year, but tax any additional income at a flat rate of 27.8%. This means that the 66% of Americans who earn less that $53,600 a year, will pay no tax at all - it's the point where the tax at 27.8% cancels out the $15000 payment.

Anyone earning more than the magic $53,600 will effectively pay tax at 27.8% on any additional income, but of course this only ramps up very slowly - as shown in the following plot - and even people in the top 1% of earners woud still be paying less than 25% (red line)

The graph also shows two other combinations or Basic Income and Tax that work well. You could give everyone a Basic Income of $10,000 a year if you had a flat rate Income Tax at 18.5% on all other income (blue line), or you could choose to give everyone $20,000 if you applied the universal income tax at 37.1%.

As with the other examples for France and the UK, I think it is only fair to point out that income tax done this way does not raise any revenue for the Government - it's purely redistributive. But in the USA, where tax payers (particularly those at the top end) are endlessly moaning about their money going to the government. In this case, NONE of the money goes to the Government - it all goes to other US citizens. You'd have to be extremely selfish to say that you would prefer to see people starving to death, or living in the street, that pay less than 30% of your income in tax.

In such a system, 2/3 of the population actually get money from the tax system. And the other third can look themselves in the mirror and say - I'm doing something good for my fellow citizens.

With the UK's general election in a few days time (9th June 2017), I thought it might be interesting to see how my proposal for introducing a Basic Income based on Negative Income Tax might work in the UK. I had already taken the percentiles of income in France to show that you could provide a monthly Basic Income of (say) €600 for all adults and pay for the whole thing with a flat rate tax on all additional income of under 30%.

What would happen in the UK?

Well, I obtained the official figures from the UK government on the income and tax paid for all percentiles in the UK, and calculated what would happen if you gave a basic income of £10000 to everyone, and then required people to pay a flat rate tax on all additional income.

I've uploaded the file to Google Sheets, so you can see the details here, but the bottom line is as follows. If you want to provide £10,000 to all tax payers in the form of a Basic Unconditional Income, it would be possible to finance the whole thing by taxing all additional income at 34.4%. Anyone earning less than £29,500 would get a net payment from the state via the tax system, scaling from £10,000 for people in the first percentile down to nothing if you are at the 66th percentile. But that means that 2/3 of the population would be net receivers from the system.

The system would be in equilibrium because the money needed to make those payments would be entirely paid for by the 34% of the population earning more than £29,500 a year. The following graph shows how it works.

The blue line shows how annual income changes with percentile of the population. The red line plots the income following the introduction of a £10000 annual Basic Income. And the yellow line shows the net transfer - positive for the bottom 66% of the population (those earning less than £29,500) and negative for those earning more.

As in the French version, the £29,500 figure is a magic cut off point. It's simply the point at which the £10000 of It is easy to vary the level of Basic Income while keeping the system neutral - you simply have to increas the flat rate tax to ensure that the top 34% of earners pay enough into the system to make the payments to the other 2/3 of the population.

Here's how the tax rate would change for different Basic Income rates:

For a Basic Income of £8000 a year requires a flat rate income tax on additional income of 27.5%

For a Basic Income of £10000 a year, set the tax at 34.4%

For a Basic Income of £12000 a year, set the tax at 41.2%

For a Basic Income of £14000 a year, set the tax at 47.2%

In fact the rule is simple - each additional £2000 a year of Basic Income requires a hike in the flat rate tax of roughly 7%.

However, it is important to realize that these numbers do not reflect the real rates of tax that people would pay. The following graph shows the effective tax rates paid under each of these four schemes as a function of income.

As you can see, tax rates are always 0% at around £29,500 of annual income and increase progressively as income goes up. But at £50,000 a year, even a £14,000 Basic Income would not require paying more than 22% in net tax.

It looks quite an attractive proposal. However, to be fair, I should note that with this scheme the UK government would not be raising any revenue from Income Tax. On the other hand, since people on low incomes would be getting quite
substantial sums of money every month from the tax system, it would no
longer be necessary to make a large number of the existing means tested
welfare payments.

Those of you who are familiar with my ideas will know that I think that there are far better ways of earning revenue for the government- especially in the UK. The solution is to replace Income Tax as the main way for the government to raise revenue by a financial transaction tax. Given the incredible levels of financial transactions in the UK, a tiny tax of a fraction of 1% would easily allow Income Tax (and indeed other taxesà to be scrapped as a way to raise revenue. Instead, the system of negative income tax proposed here has only a redistributive function.

Isn't that what we need? In a world where the top 1% of the earners are taking an excessive share of the revenue, and where jobs are dissapearing so fast that those at the bottom are no longer able to hope to earn enough to live decently, we need to provide a was of redistributing the money to everyone.

Importantly, with the proposed system, even though people do get "paid for doing nothing", the system is such that it will be always interesting for people to go out an work to earn additional income. There a no poverty traps that block people in a world of hopeless means-tested welfare payments.

14 May 2017

Those who are following my blog will have seen my suggestion that we could have a redistributive tax system whereby 61% of the population would actually get a net payment from the tax system, paid entirely by the other 39% of the population. This means that everyone earning less than about €2000 a month actually gets extra money from the system - effectively a negative income tax.

It's remarkably simple, because you just have to fix two numbers - the Basic Income level that every citizen should get, and the flat rate tax needed to cover the cost.

Thus, to provide a Basic Income of €600 a month would need a tax rate at just under 30%.
To provide a Basic Income of €800 a month, needs a tax rate at just under 40%. A
Basic Income of €1000 a month, needs a tax rate at just under 50%and so forth. Around 10% tax provides an additional €200 a month of basic income for all citizens.

So, what rate should we choose?

Well, how about using the system to replace the "Minium Vieillesse" which currently provides a minimum revenue for old-age pensioners. As of the 1st April 2017, these payments are fixed at- €803 for a single person- €1247 for a couple

These payments are currently heavilly means tested - you can only get it if you are over 65, and every euro of pension you receive from alternative sources is removed from the amount of the allocation. If you have a pension of €803 per month, the state will add nothing to your pension. If your pension is €403 a month, the system will make up the difference.

Let's compare that with what would happen if we scrapped the Minimum Vieillesse and just introduced an Basic Income at €800 a month, coupled with a 40% tax on additional income. In that case, someone with an additional pension of €800 would effectively get the €800 basic income, plus 60% of the additional pension, taxed at 40% - i.e. €480, a total of €1280. That's way better than under the current system.

Now consider what would happen to someone with pension of €1200. They would get €800 + 60% of €1200 = €1520 a month.

You have a pension of €2000? You would get €800 + €1200 (60% of €2000) = €2000, meaning that you would effectively keep it all. Only those with pensions of over €2000 a month would pay anything, and their effective tax rates would increase only slowly as shown in this graph which shows the rates for a Basic Income at €800 and tax rate at 39.5% in Blue. Even someone getting a very generous pension of €10000 would still only be paying tax on that at 31.5%.

The graph also shows the effective tax for those getting more than €2000 with the Basic Income set at €600 and the tax rate at 29.65% (in yellow) or at €1000 and the tax rate at 49.4%. It's interesting to note that even at €10,000 a month, people are paying way below the standard rate. In fact, at €10,000 a month you would be paying tax at 80% of the headline rate. To get anywhere near the headline rate you would have have to be earning far more - at €40,000 you still only have an effective tax rate of 95% of the headline rate.

So, why not scrap it, save billions a year, and also prevent people being stuck in a poverty trap that prevents them moving off the €803 baseline unless their additional pension rights are much higher.

The French system also provides another set of Benefits for people of working age. It's called the Revenue de Solidarité Active (RSA). The current value for a single person is €513.17 a month. Clearly, such a person would be immediately better off with the proposed switch to a Basic Income financed by a negative income tax, even at the lower value of €600 a month.

But, importantly, they would immediately see an improvement in their situation if they were earning additional income from a part time job. With the current RSA mechanism, any additional income is directly substracted from the €513.17. Thus, if you earned €313.17 in a given month, your RSA is docked by the same amount. You also lose some of your RSA if you are also receiving housing support - €64.22 to be precise. You simply cannot get more than the standard amount unless you are earning over the basic amount. What incentive is there to go and work a few hours a week under such conditions? It would be better to stay at home at claim the RSA unless you can find a full time job that pays enough to get you off the minimum level.

Emmanuel Macron wants to encourage people to take on work. The RSA system is the antithesis of what is required.

Compare that will my proposal where you could decide to give everyone an Unconditional Basic Income of €600 coupled with a flat rate tax of under 30%. Someone who worked part time and earned say €500 would keep slightly more than 70% of the income, moving them to €950 a month. In otherwords, it always pays to take on work, even if it is only a few hours a week.

Under the current system, which takes into account all the other sources of revenue, succesfully getting the RSA requires citizens to negotiate a whole string of complex rules and fill in large amounts of paperwork. Many disadvantaged people will miss out simply because the system is too complicated for them.

In addition to being good for incentivising people to earn additional money, switching to the proposed system would save a huge amount of money for the state. How much would it save? According to one site, the cost is currently around €10 billion a year. As I have been arguing, a much more generous program of benefits could be provided for essentially no net cost by getting the 39% who earn the most to pay those who constitute the 61% at the bottom.

So, dumping RSA and Minimum Vieillesse and replacing both by my proposed simple system would save billions. And the administration costs would be a fraction of the cumbersome means tested system that we currently have.

Is Emmanuel Macron listening? Maybe it's time to think about some really radical reforms?

8 May 2017

Yesterdary, in the second round of the French Presidential elections, Emmanuel Macron succeeded in getting 20,753,798 people to vote for him. That's 43.63% of those eligable to vote, 58.47% of those who voted, and 66.06% of those who chose to vote for one of the two candidates in the second round.

There's no denying that this is a truly remarkable performance for someone who is only 39, has never held an elected office, has no official support from any of the traditional French Political Parties, and had to launch his own "En Marche" movement (with the same initials as his name) little more than one year ago, on the 6th of April 2017.

It's truly spectacular, and I'm not surprised that many people are feeling more optimistic about the future with Emmanuel Macron as president. It could be the new blood that we desperately need.

But many people have criticised him for having spent a period of over over 3 and half years from September 2008 to May 2012 as a Banker with Rothschild and Co. And it's true that this is an invitation to those who like conspiracy theories. Could it be that he could be secretly working for the banking system? After all, the ability of Banks like Goldman Sachs to infiltrate the highest echelons of the Political system is impressive, as pointed out in a recent article in Yahoo Finance. Just as a quick reminder (thanks to Wikipedia) here is a partial list of how just one bank has managed to get its alumni into a huge number of key positions:

But I'm prepared to give Emmanuel Macron a chance to prove that he is truly independent.

Here's how he could do it.

First, he should join the chorus of distinguished economists who are calling on Mario Draghi to put an end to the scheme where he uses his power as President of the European Central Bank to create money to flood the financial markets with liquidity. The €80 billion that Draghi has been pumping into the financial system every month for the last year has been of virtually no utility to Eurozone Citizens. Instead, he should be using that money creation intelligently - for example to finance renewable energy projects, or providing direct payments to Eurozone citizens. The arguments can be found on the QE4citizens website.

Second, he should accept that the current system in which commercial banks have a virtual monopoly on money creation in the real economy, and where essentially all the money we use is created as interest bearing debt, is insane. It would be far more intelligent to allow governments to create at least some of the money we use debt free. This is what I have been proposing with the idea of the N-Euro - a parallel electronic currency that can be used to pay public sector salaries, pensions and benefits, and which has parity with the conventional Euro because it can be used to pay taxes - one N-Euro being exactly the same value for paying taxes as one standard Euro. The huge difference is that the N-Euros are not created as debt and therefore do not require interest payments. Progressively replacing Euros with N-Euros would allow us to avoid paying the absurb interest payments on public sector debt that French taxpayers have been paying to the commercial banks and pension funds. As I reported recently, those payments that have totalled over €1 trillion since 1995. French taxpayers can reasonably say - we want our €1 trillion back.

Third, he should push for the introduction of a tax on financial transactions. This is something that has been blocked by the banking lobby for years, but is totally unjustifiable. Everytime I make a financial transaction using my credit card outside the Euro area, I get charged a financial transaction tax of around 2.75% - for multiplying the value in sterling or dollars by the current exchange rate. At the same time, the banking sector and its allies makes over 5 trillion dollars worth of foreign exchange every day, and for free. Let's have a level playing field. I'm happy to pay exactly the same transaction fees as the bankers.

If Emmanuel Macron was prepared to take the lead on either of this issues, he would convince me that he is not simply a smooth and manicured front man for the Banking System. If he fails to do anything, then I'll always have doubts about his true motivations.

I'll be following developments with much interest in the months and years to come.

Like many people, I'm very relieved that Marine LePen's National Front was pushed into second place in yesterday's second round of the Presidential Elections. Congratulations to Emmanuel Macron.

But one of the most fascinating things about yesterday's results was the massive increase in the number of people who went out to vote, but refused to vote for either Macron or LePen. The official results from the French Ministery of the Interior now distinguish between "Vote Blanc" - an empty envelope, or a blank piece of paper, and a "Vote Nul" which is what happens if you write something else on the voting slip. This is actually new - and follows a change in practise that occured in 2014.

Of the 35,407,616 people who voted yesterday, over 3 million voted blanc (3,006,106 to be precise), and a further million voted nul (1,070,696). Add them together, and that tells you that over four million people (4,066,802) said "we don't want either set of policies!". That's 11.49% of the people who voted. In my part of France (Occitanie), the percent of people who voted Blanc and Nul reached 13.08%.

That's about twice the previous record.

If you are interested in the details, I extracted the relevant information in a Google Sheet that you can access here.

I'm happy to tell you that I voted blanc myself - but only after the RTBF news site in Belgium had revealed that Macron was heading for a safe victory! I didn't want to wake up this morning with LePen as president.

If you add to the 4 million plus that voted Blanc or Nul the more than 12 million people (12,041,313) who abstained, and you get a total of over 16 million people (16,108,115) who effectively reject the current policies. This massive rejection is particular clear in these graphs that you can find on the Guardian's website, that shows that for many parts of France, "spoiled ballots" (Blanc and Nul) and abstention were remarkably common.

I hope Emmanuel Macron is paying attention to this. It looks like the French people want something different from the usual tired old Neoliberal recipes. I believe that deregulation and Uberization of the economy is simply not what people want.

I believe we need radical new ideas that can make the economy work for people. Monsieur Macron, you seem to be an intelligent person, who appears to be capable of listening. I'm happy to talk with you if ever you want some new ideas.

7 May 2017

Today we will learn who will be the next French President. Hopefully, the "MacronLeaks" scandal will not have destablilised the campaign and we will avoid the trauma of having a neo-fascist like Marine LePen as president.

Nevertheless, I am far from being a fan of the very conventional neo-liberal program being offered by Emmanuel Macron. That's why I would like him to consider some of the more radical ideas that I have been pushing for the last 7 years on my blog.

In my "Open letter to Emmanuel Macron" last week, I was suggesting that he should consider replacing the bulk of the existing tax system with a flat rate universal tax on all electronic financial transactions. And I argued that the positive redistribution effect of the current inefficient income tax system could be done much more efficiently by simply providing a universal basic income to all citizens.

The idea illustrated in this particular example is that everyone gets an Unconditional Basic Income of €600 and then pays 29.65% tax on any additional revenue. Since the bottom 7% of the population have no income at all, they all get the basic €600. But the 61% of the population who earn less than about €2000 a month would all receive a net payment from the state. Someone earning €2000 would be neutral (no net monthly payment) because the €600 of Basic Income would be cancelled out by paying 30% tax on their €2000 of revenue. People earning more than €2000 would effectively pay roughly 30% tax on earnings above €2000. Thus, someone earning €3000 would pay €300 (i.e. an effective tax rate of 10%), someone earning €6000 would pay roughly €1200 (an effective tax rate of 20%), and so forth.

If you look at the details, this means that there would be a net transfer of nearly €10 billion per year to the 61% of the population earning less than €2000 a month, entirely paid for by the 39% earning more than €2000 a month. In other words it would be a pure redistribution system. But importantly, more than a quarter of the money (€2.75 billion) would be paid for by those in the top 1% of the population. Indeed, nearly €1 billion would be contributed by the top 0.1% of the population, and no less than €390 million by the 0.01% of the population who earn the most.

It is interesting to point out that the €600 and 29.65% tax rate numbers are just one of a whole range of options. For example, if you only want to guarantee €400 of basic income per month, you could fix the tax rate at below 20% and again have a perfectly balanced redistributive tax system. In that case, €6.2 billion would be redistributed from the top 39% of earners to the bottom 61%, as shown in the following figure.

Likewise, suppose you wish to increase the basic income to €800. In that case, you would need to increase the flat rate tax rate to 39.95%, which would transfer about €13.27 billion from the top 39% to the bottom 61% as shown in the figure.

You want an even larger Basic Income? Easy. To get an Unconditional Basic Income of €1000 a month, you simply have to increase the flat rate tax to 49.5% and you will transfer nearly €16.6 billion from the most affluent 39% of the population to the other 61%.

It's interesting to note that note that it doesn't matter which particular combination of Basic Income and Tax rates you choose, the percentage of the population that get a positive net payment stays fixed at 61%. Indeed the rule is pretty simple. Relative to a reference figure for the Basic Income of €600 and a tax rate at just under 30%, adding an extra €200 to the basic income requires a hike in the flat rate income tax of about 10%.

These numbers are built into the basic principle that the income tax system is designed as a redistribution system that shifts income from those who are earning a lot to those who are earning less than €2000 a month. If you actually wanted income tax to provide money to pay for other things (like the staggering €46 billion a year that French tax payers have been paying in interest on public sector debt since 1995!), then you could I suppose increase the tax rate above the levels proposed here. Personally, I object very strongly to the government using my income tax to pay illegitimate interest payments to commercial banks who didn't even have the "money" that they lent the French Government. In contrast, I would have much less problems if those interest payments were paid for using a tax on financial transactions - but that's another story.

If you do want to use this mechanism to actually raise money, rather than simply redistribute it, it's actual quite simple. If you go above the neutral tax rate for a given basic income level, each 10% increase in the tax rate generates roughly €120 billion in revenue. Thus, if we set the Basic Income at €600 and move the Tax rate from just under 30%, to 40%. First, it would generate €120 billion of extra income for the government. But second, it would move the point at which people start having to pay tax from €2000 a month, to about €1500 a month with the result that the percentage of people who receive money from the system will drop from 61% to 45%.

But for me, I really like the idea that Income Tax should serve one purpose, and one purpose only- namely redistributing wealth from the affluent to the less affluent. This may appear to go against my previous proposition that we could potentially scrap all taxes (including income tax) using a flat rate financial transaction tax. But the fact is that currently, French income tax only generates about about €146 billion a year, and most of that is in the form of the CSG (Contribution Sociale Generalisé) which is currently fixed at 15.5% and is not in the least bit progressive.

I think that people would be much happier with Income Tax if they knew exactly what it was being used for. Essentially, with my proposals, if you are among the 61% of all French citizens who earn less than about €2000 a month, your income tax will be NEGATIVE - it will be a good thing! In other words the majority of French voters would actually be in favor of Income Tax!

And for those earning more than €2000, they will be able to feel proud that their taxes are going to help those with low incomes. If you are in the 1% of French citizens earning more than about €11,000 a month, you will be able to look yourself in the mirror and not feel ashamed, because you are helping to contribute about 25% of the money needed to provide a basic income for all.

If you are in the 0.1% who earn more than about €32,500 a month, you will be even more proud to know that you among the group that finance no less than 10% of the basic income. And finally, if you count yourself among the 0.01% earning more than €110,000 a month, you will proudly be able to boast that your contributions pay for 4% of the basic income.

But for me, there are other huge advantages of scrapping the current ridiculous Income Tax system. My proposals are simple and easy to understand. No more tax bands. No more tax loopholes. Income tax will be simple to understand. Noone will need to spend their weekends trying to make sense of the ludicrously complex tables which you need to use to work out how much you should be paying in income tax. It will be simple. You will get a fixed allowance in the form of a basic income and then pay a flat rate on all additional income. Simple. Clean. And efficient.

At the same time, the existence of an Unconditional Basic Income at €400, €600, €800 or even €1000 a month would mean that most of the existing means tested benefits could be scrapped. You could potentially only keep benefits for people who are physically or mentally unable to earn additional income by working. Imagine the impact of such a vast reform?

Emmanuel Macron - are you listening? Isn't this the sort of liberalisation of the economy that you have been arguing for?